Reference Document For the National Focal Points’ Meeting 16 June 2020 The Impact of COVID-19 on CAREC Aviation and Tourism Draft, 8 June 2020 This study was prepared for ADB by Brendan Sobie, Sobie Aviation Pte Ltd Table of Contents Introduction …………………………..……………………….………. Pages 2-3 Impact Assessment Summary …………………………………. Page 3 Summary of Recommendations ……………………………… Pages 4 Impact on Passenger traffic and revenues ……………… Pages 5-11 Impact on Jobs ………………………………………………………. Pages 11-12 Impact on Visitor numbers and spend ……………………. Pages 12-18 Opportunities …………………………………………………..……. Pages 18-28 Needs …………………………………………………………………….. Pages 29-32 Addendum: Mongolia Case Study ………………………….. Pages 33-41 Scope of Study: This study includes the following 10 CAREC countries: Afghanistan, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan and Uzbekistan. China’s Xinjiang Uygur and Inner Mongolia autonomous regions are also part of CAREC but China is excluded in all data and analysis compiled as part of this study. Data is not available on specifically these regions of China and to include all of China would distort the overall data. 1 Introduction COVID-19 has had a devastating impact on the aviation industry globally as nearly all air travel came to a halt in late March and April. CAREC was no exception as virtually all scheduled international flights were suspended and several countries also implemented bans on domestic air travel in attempt to contain the spread of COVID-19. All CAREC countries arranged repatriation flights to bring citizens stuck overseas home but this traffic was very limited compared to normal volumes. Domestic markets in CAREC started reopening in May and domestic services in all CAREC countries have now resumed. However, domestic traffic is still well below pre-crisis levels and will take several months to fully recover. As of the beginning of June, almost all international flights remained suspended and more than half of the CAREC passenger aircraft fleet was still grounded. There are about 25 airlines based in CAREC offering scheduled passenger services. There are a few domestic only airlines but most airlines in CAREC rely mainly or entirely on the international market for generating revenues. Some CAREC countries have started reopening their international markets but with restrictions that significantly limit demand. For example, Pakistan permitted scheduled international flights to resume on 31 May but these flights can only carry passengers leaving Pakistan. Flights arriving in Pakistan are allowed to carry cargo but no passengers. All CAREC countries are expected to reopen their international markets over the next few months. However, demand for international travel will initially be soft as travel restrictions remain in place for some destinations, including quarantine requirements. Most CAREC citizens will also likely be wary of travelling abroad for some time and may choose to take holidays, if any, domestically. The recovery of international passenger traffic will be very slow. Traffic is expected to still be at small fraction of pre-crisis levels at the end of this year and may not fully recover to 2019 levels until 2023. The important reduction in international passenger traffic for 2020 and associated reduction in tourism will have a huge economic impact. This study assesses the impact of COVID-19 on aviation and tourism in CAREC and provides some recommendations on how to potentially mitigate this impact and achieve a recovery rate that is faster than the global average. This will be a very challenging year for aviation and tourism. However, there are opportunities to use this crisis to improve CAREC’s long-term position. 2 This crisis provides an opportunity to reset CAREC’s aviation industry through reforms, new strategies and restructurings. This study looks briefly at some of these opportunities and makes some initial recommendations. It also provides a broad level assessment of the impact on CAREC with the objective of highlighting the gravity of the current situation and starting a dialogue. This study is intended as a first step in a wider project to more fully assess the impact of COVID- 19 and identify a comprehensive list of recommended measures and policies to help CAREC countries mitigate the impact and recover. As part of the next phase in this project ADB aims to engage with CAREC’s aviation community and hold virtual meetings in member countries to discuss the impact, the initial recommendations and the potential recovery. Impact Assessment Summary Estimated airline traffic reduction for CAREC in 2020: 34 million passengers Estimated airport traffic reduction for CAREC in 2020: 39 million passengers Estimated passenger revenue impact for CAREC in 2020: USD5 billion Estimated travel and tourism jobs in CAREC that are at risk in 2020: 700,000 jobs Estimated reduction in international visitor spend for CAREC in 2020: USD9 billion Estimated reduction in visitor numbers for CAREC in 2020: 24 million visitors Estimated reduction in visitor arrivals by air for CAREC in 2020: 5 million visitors Estimated required financial support for CAREC airlines in 2020: USD2 billion 3 Summary of Recommendations 1. CAREC should promote domestic tourism in the second half 2020 to help facilitate a recovery of the aviation and tourism sectors during a period of much lower international traffic. 2. CAREC countries should consider opening green lanes to facilitate and stimulate travel and tourism within CAREC. 3. CAREC countries should consider implementing a visa free policy to further facilitate travel and tourism within CAREC. 4. CAREC should promote improved air connectivity between CAREC countries during the pandemic and after this crisis. 5. CAREC should consider providing incentives to support the launch of new routes connecting major cities with tourist destinations in other CAREC countries 6. CAREC should invest in boosting air cargo capabilities, leveraging its strategic location between Asia and Europe and driving increased cargo revenues for the aviation industry during a period of passenger declines. 7. CAREC should promote contactless air travel and invest in technologies to support digital procedures at airports. 8. CAREC should adopt uniform standards and regulations for air travel in the COVID-19 environment. 9. CAREC should consider providing financial support to airlines through loans and loan guarantees 10. CAREC should consider providing general support packages to the aviation and tourism industries through benefits such as wage subsidies, tax reductions and fee waivers. 11. CAREC should consider alternative funding options to offset the impact of reduced overflight revenues. 4 COVID-19 impact on air transport globally and how CAREC stacks up CAREC’s aviation industry is proportionately more impacted by COVID-19 than the global aviation industry due to a heavy dependence on the international market. Prior to the COVID-19 pandemic, the domestic market accounted for 59% of global passenger traffic compared to 41% for international. However, in CAREC the domestic market accounted for only 27% of passenger traffic compared to 73% for international. Traffic between the 10 CAREC member countries excluding China accounted for only about 3% of total traffic CAREC traffic. Therefore, when including the 27% portion of total traffic that is domestic, only 30% of CAREC traffic consisted of passengers heading within CAREC compared to 70% outside. This is much lower ratio of internal traffic than other regional groupings such as ASEAN. Globally passenger traffic is expected to decline by around 50% in 2020. A full recovery to 2019 levels is not expected until at least 2022 – and more likely 2023 or 2024. Domestic traffic will recover faster, albeit gradually. Domestic traffic will likely decline by 30% to 40% in 2020 at a global level. The rate of decline will vary depending on the country. Domestic markets that rely heavily on international tourists will decline by more given the sharp drop in international traffic. Domestic markets that rely mainly on local residents and have a population that is eager to resume travelling – but will generally not be able to go abroad due to all the international restrictions – could recover more rapidly. These types of domestic markets, which include some CAREC countries such as Kazakhstan, could be back at 2019 levels in 2021. At a global level, international passenger traffic will likely decline by 60% to 70% in 2020 and is expected to remain well below 2019 levels in 2021. Some countries will have smaller declines than others but there are very few if any counties that will be able to resume growth earlier than 2022. The return of international traffic to 2019 levels likely hinges on vaccination. This study projects a 58% decline in total CAREC passenger traffic for 2020. This is higher than the global average due mainly to CAREC’s small domestic market, which is projected to decline by 32%. Domestic air travel is already starting to recover in many CAREC countries. However, the benefit of resumed domestic travel is somewhat limited given the small size of the domestic air transport markets in most CAREC countries. This study projects a 67% decline in CAREC international passenger traffic for 2020. This is also slightly higher than the global average as most CAREC countries have a high degree of seasonality with significantly higher passenger traffic in summer months. 5 Some CAREC countries still hope to salvage the peak summer season by attracting some international tourists in July and August. However, travel to and from CAREC this summer will be very low due to limited demand and lingering travel restrictions. More international travel is expected globally in the fourth quarter of 2020 but as these are off-peak months for most CAREC countries the total decline for the year will be higher than the global average. January and February, which this year experienced normal volumes of traffic globally except for China, are also off-peak months for most CAREC countries. Traffic started declining in March and by the end of March virtually all scheduled international passenger services were suspended.